The Future Is Almost Here For Purchasing on the Web

April 1, 2001

Joyce R. Ochs

Despite the recent nose dive by technology stocks, e-commerce is alive and well. The dot-coms may have faded, but the real Internet action is coming from traditional companies that are expanding their marketplaces by adding Internet access.

It is hard to measure just how fast the move to the Internet is occurring in the health care industry. The Web sites of the dominant providers of pharmaceuticals and health care supplies are aimed at individual consumers. Few of them have information for their trading partners. While some have separate sites for business-to-business e-commerce, they are not easily found.

Yet common to almost all these sites are the press releases quoting CEOs and other senior management affirming the company's strong commitment to doing business on the web.

Although this may seem contradictory, it isn't. The purchasing process for the health care industry is so complex that moving to the web can be a multiyear project.

One health care purchasing site that seems further along than most is the Global Health Exchange (www.ghxonline.com).The products and supplies of many manufacturers can be purchased there. We are taking a detailed look at its setup, because the Global Health Exchange is willing to discuss how it is dealing with the issues all health care business-to-business sites will face.

The Global Health Exchange (GHX) was founded in March 2000 by Abbott Laboratories, Baxter International, GE Medical Systems, Johnson & Johnson, and Medtronic. It is a privately held, independent trading exchange, designed specifically for the Internet.

Today there are 75 suppliers and 160 purchasing members, some of which are group purchasing organizations (GPOs) and distributors. GHX says it is open to all health care manufacturers, suppliers, and distributors to make the exchange as valuable as possible to users.

Suppliers on the exchange pay a subscription fee based on their annual revenues. Purchasers pay nothing to use the exchange.

How it works

GHX is developing a standardized, electronic catalog for its users. This means that the catalog of each GHX-affiliated supplier is being merged into one inclusive database. A purchaser does not browse the standardized catalog to order supplies, however. On joining the exchange, each purchaser gives GHX a list of the supplies he generally orders and the suppliers he uses.

The list of supplies is called an item master. When a purchaser wishes to place an order, he pulls up his own item master and indicates the items he wants. The order is then transmitted by GHX to the appropriate suppliers or distributors, which must be affiliated with GHX.

The item master is important because it maps the items it contains to the standardized GHX catalog while allowing the purchaser to maintain his own numbering system for purchases. In addition to the benefit of ordering from a customized list, the item master is a tool for exchanging data between incompatible systems.

It is important to note here that GHX is not interested in changing the existing supply chain. It does not act as a distributor, nor does it get involved in the delivery of items purchased through the exchange. It expects purchasers to continue to deal with the same suppliers and distributors they used before joining the exchange. Likewise, GHX is not involved in invoicing and payments. Purchasers and suppliers make their own arrangements for settling accounts independent of GHX.

One advantage of the standardized catalog is that if a purchaser's normal supplier or distributor is temporarily out of stock on a particular item, the purchaser can search the GHX catalog or another supplier.

The purchaser must take the initiative to check with the new supplier about price and availability, however.

Integrating and standardizing the catalogs is only one system hurdle for an Internet exchange. If electronic ordering is to make any sense, GHX must be able to communicate electronically with every single purchaser, regardless of the purchaser's own system configuration.

GHX has chosen to develop its software in three stages. The first stage, which is currently supporting three purchaser pilot sites, has all data, including the item masters, housed on an application server. Purchasers use a standard browser to interact with the site.

The second stage of the software is for purchasers using enterprise resource planning (ERP) systems or material management information systems (MMIS). In such cases, purchasers want the data to go directly to and from their own systems without having to be entered again.

Software adapters

To do this, GHX is working with an outside software consultant to build software adapters that will modify the data flow so that GHX can seamlessly interact with any ERP or MMIS system. This entails building an adapter for every ERP and MMIS software system, and modifying it to match the individual purchaser's system requirements.

This is another big project, but one that is necessary if GHX expects to attract purchasers. With the exception of small group practices, perhaps, almost every purchaser has an MMIS or ERP system in place. When this second stage is ready, all users on Stage 1 will be converted to the Stage 2 model.

Stage 3, also in process, involves working with software vendors to build GHX capability directly into the next release of their software. This will do away with the need for software adapters, as GHX will be integrated into the body of the ERP or MMIS software.

A hospital in Chicago is slated to be the first pilot site for the third version in the second quarter of 2001.

What can be purchased?

Although GHX plans eventually to offer a variety of health-related products, the initial product list comprises medical and surgical products and devices, including disposables. The next product group to be available will be capital equipment, such as MRI scanners. Pharmaceuticals will be added later.

Befitting its name, GHX has worldwide plans. From its U.S. base, it wants to expand to Canada, Europe, Asia, and the Pacific. European pilot sites are to be launched later this year, and will include some suppliers specific to the European market.

GHX cannot be called an e-commerce site because it is too limited. The only electronic process occurring at the site is ordering. The other steps of the transaction — arranging delivery and payment — are missing.

Although GHX says invoicing and payment will become electronic, they now must be handled separately by the parties to the transaction.

Looking at GHX illustrates some of the issues in moving business to the web. As individual health care manufacturers begin to open their sites, we will see if anyone is truly ready for e-commerce.